Report Budget

A Report On Union Budget of India 2006-2007 Submitted By : Rashi Jain Sushma Pareek Mehak oberoi Prasanjit Goswami Nirmal Maloo

Index •

Significance of Budget

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What is Union Budget

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Main components of Indian Budget

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Important Factors of Budget

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Budget Estimates 2006-07

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Overview Of The Economy

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Effect on Various Sectors of Indian Economy

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Tax Proposal

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Bibliography

Significance of Budget Lots of people fail to see why a budget is a good thing. It may seem as if being put on a budget says that you don’t make enough money or make wrong choices. Actually, being on a budget says that you make the right choices. For now and for the future. So why should you budget? 1. A budget gives you the ability to control your money. Your money doesn’t control you when you say where it goes. You choose to make the choices. If your money is controlling you, you are choosing not to choose where your money goes. You aren’t making the decisions. But you make that choice. 2. A budget not only lets you know what you are spending, it helps you to live below your means. You know if you are spending more than you make. You are able to look at your spending to see how you can make it fit your income. Your income will never fit your spending on its own, so you have to adjust your spending first. 3. A budget is more than what you are spending and where. It is your goals and plans and spending. If you don’t have guidelines for your goals and plans, you probably won’t reach them. You need to know what you need to get where you are going. This is essential to being able to retire comfortably, pay for your children’s education and enjoy a carefree life. 4. A realistic budget frees up money for you. You are able to spend your money on things you really want instead of wasting it on things you don’t remember buying. If you have ever looked in your wallet and wonder where you spent all of your cash today, you need to have a budget. After all, fifty bucks can slip through your fingers rather quickly. 5. A budget helps you get out of debt. It also helps you to stop from creating debt. Your saving goals are very important. For every dollar you spend on a credit card, you are cutting thousands out of your savings. Look at how fast your savings can add up. Look at how long it can take you to pay off your debt. It is easy to see that you should

make a plan to pay off the debt and put your money to work for you, not against you. 6. A budget can improve the quality of your life. You have a plan. You no longer have to lie awake wondering how you will make ends meet. Your budget lays things out for you. Your less stressed and able to enjoy life a little more.

What is a Union Budget? To know about union budget or any sort of budget, first of all, we should know the notion & significance of budget. A budget is basically "an organized planning of intended expenditure & revenues for the upcoming year before the last working day of February of each year", presented by finance minister of India to the Lok Sabha (lower chamber) in parliament. Union budget is also known as the general budget because it covers & determines the maximum area of intended expenditure. Even after 60 year of independence, India is listed in third world countries because Indian soil is facing various economic troubles from a long time. It includes starvation, unemployment, illiteracy, and unavailability of shelter, food, and many more. For the eradication of these evils, our contemporary nation builders are struggling & proposing various schemes & programmes. Some of them are Mid-Day Meal Scheme,Sarva Shiksha Abhiyan,Antodaya Anna Yojna and many more. All these schemes and programmes function under the guidance of central government with the financial support of union budget. Apart from all these, Indian government expense heavy expenditure on defense, this also comes in union budget. So, the basic idea is budget determines the expenditure & revenue of every year & the parliament will approve the union budget before the commencement of India’s fiscal year which starts from April 1st. The Union Budget for a given year gives details of expenditures planned by the government and expected revenues from the government's tax machinery to finance them. The Union Budget uses the term "receipts" for incomes. Both receipts and expenditures are classified under two heads: Revenue Account and Capital Account. While Revenue Receipts and Revenue Expenditures are expected to occur in a given financial year, Capital Account Receipts and Expenditures can happen over a longer time interval. The Union Budget uses the term “receipts” for incomes.Both receipts and expenditures are classified under two heads: Revenue Account and Capital Account. While Revenue Receipts and Revenue Expenditures are expected to occur in a given financial year, Capital Acccount Receipts and Expenditures can happen over a longer time interval. Government's revenue incomes or receipts originate from two sources: taxes, and returns on capital invested in public sector enterprises. The

government's tax income includes the income tax; service tax; the excise levied on products and the customs duties charged on imports. Additional income comes from taxes charged on company profits, besides taxes on capital gains made while selling off assets like shares and houses. Capital receipts could come from within India or from foreign governments and multilateral organizations like the International Monetary Fund (IMF). When you buy an Indira Vikas Patra or open a PPF account in the post office, you boost the government's capital receipts. Repayment of loans by the government, say, to a PSU, also come under the head of capital receipts. Government's revenue expenditure includes money spent on normal running of government departments and various services, interest charges on government debt, subsidies. Grants to State governments and other parties are also treated as revenue expenditure. Capital expenditure includes payments made for acquisition of efforts like land, buildings and machinery, as also investments in shares. Loans and advances extended by the Centre to State governments and Union Territories, PSU's and other parties also fall under this category. Government expenditure is also classified into plan and non-plan expenditure. Plan expenditure is money spent on new projects such as new power plants or bridges, expected to commence in the financial year. Nonplan expenditures emanate from projects that have already been completed. For instance, maintenance and salaries of staff of primary schools set up by the government would be classified under this category. The Budget also has policy announcements. The Budget indicates the government's economic thinking and determines activities such as exports and foreign direct investment, which indirectly impact our finances. The Budget has both short-term and long-term effects on finances. Short-term effects take place via taxes and prices. Tax rates determine disposable income. Income tax rates laid down in the budget make a big difference to salaried people, who have fixed incomes. The indirect taxes like excise and customs duties laid down in the Budget impact product prices, and hence spending decisions. In the long run, the direction inflation takes in response to the budget influences money. Suppose, to balance the budget, the government borrows heavily. It may then be forced to print more money. This increases demand

for goods and services without a commensurate increase in supply, since higher supply requires new plants and greater manpower, which take time. So there will be an inflationary price rise.

Main components of Indian Budget The Indian constitution is a two chambered Parliament. All Government expenditures and taxes are levied according to the drafted act of Parliament of India. India Budget audits all Government accounts and ensures that all expenditures are within the ambit of the Indian Parliament act and rules. India Budget checks that all the previous budget allocated funds are properly spent. However, tax or expenditure proposal can be offered by the minister of finance only. On the last day of the month of February the finance Minister proposes the India Budget before the full house of the Indian Parliament. All the below fields are covered in a Budget. • • •

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Plan expenditure and Non-plan Expenditure. Revenue deficit and fiscal deficit. Developments in o Agriculture o Farm credit, o Irrigation, o Transport, o Railways, o Subsidies, o Banking system, Insurance, Agricultural Insurance, National Bank for Agriculture and Rural Development, Regional Rural Banks, Housing loans, Exclusive health insurance, Capital market, o Urban and Rural Infrastructure Development, o Industry, o SMEs, Gross domestic capital, Foreign direct investment and Portfolio investment. Central Public Sector Enterprises, Budgetary resources, Outstanding credit, Foreign Trade and Merchandise exports, Differential rate of interest, Expenditure on o Defense, o Education, o Water, o Health care,

o o

Environmental matters, Physically challenged persons.

Important Factors of Budget India Budget is essentially - a detail of estimated ‘expenditure’ and projected ‘income’ of the Government if India. After thirty days of the Budget proposal, the Lok Sabha scrutinizes and amends the proposed India Budget. India Budget finally comes into effect from the 1st day of April – which is the the 1st day of the new financial year. These are the factors and papers which are included while presenting a budget : • • • • • • • • • • • • •

Economy Survey Budget Speech Key to Budget The Medium Term Fiscal Policy Statement India National Budget Implementation of Budget Announcements Receipt Budget Online Trading Infrastructure Memorandum Statement of Revenue Foregone The Fiscal Policy Strategy Statement The Macro Economic Framework Statement

Budget Estimates 2006-07 • • • •

Plan Expenditure: estimated at Rs. 172,728 crore, up by 20.4%. Non-Plan Expenditure: estimated at Rs. 391,263 crore, up by 5.5% Revenue Deficit: estimated at Rs. 84,727 crore, 2.1% of the GDP. Fiscal Deficit: estimated at Rs. 148,686 crore, 3.8% of the GDP.

Overview Of The Economy •

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2004-05: growth rate 7.5% with manufacturing sector at 8.1%; gross domestic saving increased t 29.1% of GDP and the rate of gross capital formation, 30.1% of GDP. 2005-06: GDP growth likely 8.1% with manufacturing sector to 9.4%; agricultural growth 2.3%; inflation as on 11th February'06 was 4.02%; non-food credit growing by over 25%.

Effect on Various Sectors of Indian Economy The main features of the budget are as follows1) Agricultural development 2) Promoting employment 3) Increasing investment 4) Augmenting infrastructure 5) Flagship Programs

1)Agricultural development-

State is expected to pool in Rs2,2520 crore from their resources, Command Area Development Programme to be revamped to allow irrigation management through water user’s association, 20,000 water bodies with an area of 1.47 million hectares identified in the first phase for repair, estimated cost for renovation and restoration is Rs4,481 crore. Farm credit expected to increase to Rs175,000 crore in 06-07 with an addition of 50lakh farmers, banks asked to open a separate window for self-help groups, one-time relief to be granted to farmers who have availed of crop loan from scheduled commercial banks. National Insurance Scheme to continue. Central Institute of Horticulture to be established in Nagaland , National Fisheries Development Board to be constituted.

2) Promoting employment-

Five industries with employment opportunities identified are in manufacturing sector, including textiles, food processing, petroleum, chemicals and petrochemicals, leather and automobiles; in services sector including, tourism and software can offer large number of jobs. Industry

Govt. Changes

1. Textiles

Allocation for Technology Up gradation Fund enhanced from Rs435cr to Rs535cr, Rs189cr to be provided for Scheme for Integrated Textiles Parks , Jute Technology Mission to be launched, National Jute Board to be established.

2. Food processing

This is the priority sector for bank credit. National Institute of Food Technology Entrepreneurship and Management to be setup, Paddy processing Research Centre, Thanjavur to be developed into a nationallevel institute.

3. Petroleum

A Task force setup to facilitate development of large PC&P Investment Regions, three such Investment Regions expected to be developed in 06-07.

4. Service sector

SMEs to be recognized in the service sector and small scale enterprises in the services sector to be treated on par with small scale enterprises manufacturing sector. In the tourism industry , development of 15 tourist destinations and circuits to be taken up, 50 villages with competency in handicrafts, handlooms and culture , to be identified and developed. Four new institutes of hotel management to be established in Chhattisgarh , Haryana, Jharkhand and Uttaranchal. Foreign trade share in world exports to be doubled by 0809.

3) Increasing investment :Government to provide equity support of Rs 16,901cr and loans of Rs.2,789 cr to central PSEs (including Railways). Net capital support to banking sector standing at Rs.22,808cr to be restructured to facilitate increased access of banks to additional resources for lending to the productive sectors, Bill on insurance to be introduced in 06-07. Limit on FII investment in Government securities to be

increased from $1.75 billion to $2 billion and the limit on FII investment in corporate debt from $0.5 billion to $ 1.5 billion, ceiling on aggregate investment by mutual funds in overseas instruments to be raised from $ 1 billion to $ 2 billion with removal of requirement of 10 mutual funds to be allowed to invest, limited number of qualified Indian mutual funds to be allowed to invest up to $1 billion in overseas exchange traded funds.

4) Augmenting infrastructure:Telecommunications to reach 260million connections by December, 07. In power, five ultra mega power projects of 4000MW each awarded before December 31,06 to create an enabling and empowered framework to carry out reforms an Empowered Commission of Chief Ministers and Power Ministers to be setup. India Infrastructure Finance Company Limited Incorporated with principal approval granted for three road projects in Gujarat.

5) Flagship Programs-

Allocation for eight flagship programmes to increase by 43.2 percent from Rs34,927 cr in 05-06 to Rs 50,015 cr. 1) Sarva Shiksha Abhiyan- 500,000 additional classrooms to be constructed and 1,50,000 more teachers to be appointed, Rs 8,746 cr to be transferred to the Parambhik Shiksha Kosh from revenues through education cess. 2) National rural Health Mission- more than 200,000 Associated Social Health Activists to be fully functional and over 1,000 block level community health centres to provide round the clock services, allocation increased from Rs 6,555 to Rs 8,207 cr. 3) Integrated Child Development Services- additional 188,168 centres created, centre assisting the States to the extent of 50 percent of the actual expenditure incurred for supplementary nutrition . 4) National rural Employment Guarantee Scheme- allocation of Rs 14,300 cr for rural employment in 06-07. 5) Jawaharlal Nehru National Urban Renewal Mission- government to promote establishment of new towns, focused on a specific sector or a specific theme with grant of Rs 4,595 cr.

6) National Social Assistance Programme- old age pension to destitute above the age of 65years to increase from Rs75 per month to Rs 200 per month. 7) Kasturba Gandhi Balika Vidyalaya scheme- 1000 new residential schools for girls from Sc, St, OBC and minority communities to be opened in 06-07, as a futher incentive if a girl passes 8th standard and enrolls in secondary school , a sum of Rs 3000 to be deposited in her name and withdrawn by her reaching on 18yrs of age. 8) Rajiv Gandhi National Drinking Water Mission- provision to be increased from Rs 3,645 cr to Rs 4,680 cr and for rural sanitation campaign from Rs 630 cr to Rs 720cr.

TAX PROPOSAL

Direct Tax • • •

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The rates remain same on personal income tax and corporate income tax. Further, no new taxes have been imposed. 1/6 scheme will stand abolished. There is a marginal revision in certain tax rates. Minimum Alternative Tax (MAT) rate is increased to 10% from the present 7.5%; long-term capital gains arising out of securities is included in calculating book profits; the credit period for MAT has been increased to seven years. There is an increase of 25%, across the board, on all rates of STT. Investments in fixed deposits in scheduled banks included in section 80C provided the term is not less than 5 years; limit of Rs. 10,000 for the contribution of certain pension funds is removed from 80CCC subject to overall ceiling of Rs. 1,00,000. Open-ended and close-ended equity-oriented schemes to be treated on par for exemption from dividend distribution tax. Exemption under section 10(23G) removed.

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Primary Agricultural Credit Societies and Primary Cooperative Agricultural and Rural Development Banks is still exempt from tax under section 80P; all other cooperative banks are excluded. Benefit of section 54ED withdrawn w.e.f. April 1, 2006; scope of section 54EC restricted to two institutions, viz., NHAI and REC; for NABARD, SIDBI and NHB route of zero coupon bonds to raise low cost funds already opened. Donations to wholly charitable institutions to be taxed at the highest marginal rate; such donations to partly religious and partly charitable institutions/trusts to be taxed only if the donation is specifically for an educational or medical purpose. Banking Cash Transaction Tax (BCTT) to continue until the Annual Information Returns (AIR) system can capture all significant financial transactions. Fringe Benefit Tax (FBT) introduces last year is proposed for the following changes: o FBT on 'tour and travel' reduced to 5%. - For airline companies and shipping industry, value benefit in the form of 'hospitality' and 'use of hotel boarding and lodging facilities,' at 5% instead of 20%. o Expenses on free samples of medicines and medical equipment distributed to doctors excluded. o Under section 115WB(1)(c) contribution by an employer to an employee per year a threshold of Rs. 1,00,000 has been prescribed to attract FBT.

Indirect Tax Customs •

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Non-agricultural products peak rate reduced to 12.5% from 15%; duty of alloy steel and primary and secondary nonferrous metals reduced to 7.5% from 10% (also includes duty for ferro alloys); on steel melting scrap, the duty raised to 5%. Apart from few exceptions, the duty on mineral products reduced to 5%. Duty on ores and concentrates reduced to 2% from 5%. On refractories and number of materials for manufacture of refractories reduced to 7.5%. On basic inorganic chemicals reduced to 10% from 15%; on basic cyclic and acyclic hydrocarbons and their derivatives to 5%; on catalysts the duty to be reduced to 7.5% from 10%.

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Duty reduced to 5% from 10% on major bulk plastics such as PVC, LDPE and PP; on naptha for plastics it is nil; on raw materials of plastics like styrene, EDC and VCM, the duty is 2%. On 10 anti-AIDS and 14 anti-cancer drugs customs duty has been reduced to 5%; on certain life saving drugs, kits and equipment it is reduced to 5% from 15%; these drugs are exempted from excise duty and CVD. On packaging machines, duty reduced to 5% from 15%. Concessional project rate of 10% is to be extended to pipeline projects for the transportation of natural gas, crude petroleum and petroleum products. 4% CVD on all imports with few exceptions. On vanaspati, custom duty to be increased to 80%. Reduction of import duty on all man-made fibres and yarns, and raw materials lik DMT, PTA and MEG to 10% from 15% and on paraxylene to 2%.

Excise • • •

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Reduction of excise duty on all man-made fibre yarn and filament yarn to 8% from 16%. Duty on aerated drinks and small cars to be reduced to 16%. Customised software and software packages downloaded from the internet, DVD Drives, Flahs Drives and Combo Drives is to be fully exempted from excise duty but 8% duty to be imposed on packaged software sold over the counter. To all LPG stoves, concessional rate of 8% to be extended. Duty to be reduced to 8% from 16% on compact fluorescent lamps. Increase in excise duty on cigarettes by 5%.

Service Tax • •

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Service tax rate increased to 12% from 10%. New services to be included like ATM operations, maintenance and management, share transfer agents, sale of space or time (other than print media), sponsorship of events (other than sports events), ship management, etc. Leasing and hire purchase to be treated as loan transactions. Proposal to set April 1, 2010 as the date for introducing Goods and Service Tax (GST).

VAT and CST •

To moderate the price, LPC has been included in the list of 'declared goods' under the CST Act.

The Chart here shows various rises and falls of the tax revenue collected due to various types of taxes and shows the whole trend to analyze how has it emphasized on the economy of India. Each type of tax revenue has shown a certain rise in the on going years.

Bibliography 1. www.indiabudget.nic.in 2. www.google.co.in 3. www.economywatch.com 4. www.rediff.com 5. www.crisil.com 6. www.indianchild.com/indian_budget.htm 7. www.iloveindia.com/finance/union-budget06-07/index.html